The Box 3 income tax levy continues to cause controversy. The State Secretary for Finance recently commented on what form a future Box 3 levy might take and the timing of the introduction of a new system. In addition, the ’s-Hertogenbosch Court of Appeal has ruled that unrealised capital gains do not have to be taken into account in the calculation of the present Box 3 levy
Box 3 taxation
The Box 3 income tax levy continues to cause controversy. The State Secretary for Finance recently commented on what form a future Box 3 levy might take and the timing of the introduction of a new system. In addition, the ’s-Hertogenbosch Court of Appeal has ruled that unrealised capital gains do not have to be taken into account in the present Box 3 calculation.
Answers to Parliamentary Questions on Box 3
The State Secretary recently answered some questions (again) on the future Box 3 levy. Among other things, he explained that the introduction and implementation of a graduated fixed levy is less complex than a tax based on the actual return. This, he says, is mainly because more information is required for a system based on actual returns. This would also mean a further increase in the size of the tax form. It is believed that some of this information could be supplied by partners in the chain and pre-completed in the income tax return. Information which the tax authorities cannot obtain from the partners, the taxpayer will have to enter in the form themselves. The State Secretary believes that this additional data retrieval from taxpayers will lead to more demand for the services provided to taxpayers and that the lack of this information would also make inspection of the tax returns more labour intensive.
In other words, the advantage of a system based on actual returns is that it better reflects the actual situation of taxpayers, with the drawback that this is expected to require more capacity, support and inspection on the part of the tax authorities.
You can find the Letter To Parliament (in Dutch) here.
No new system until 2027
The State Secretary for Finance also recently indicated that it is highly unlikely that a Box 3 levy based on actual returns will be possible before 2027. He indicated that the envisaged introduction date of 1 January 2026 was not feasible practically. The reasons for this, he noted, lie partly in the delay in the modernisation of the tax authorities’ IT systems and in the formation of the current Cabinet which did not give proper consideration to what a system based on actual returns would entail.
Unrealised capital gains do not constitute actual returns
The present system also leads to uncertainties and various court cases have already been brought.
In a recent case brought before the ’s-Hertogenbosch Court of Appeal an interested party took the view that in 2017 and 2018 they had been incorrectly taxed in Box 3 on the value of a property. The interested party had not received any income from the property. The property in question was not let and the interested party had only incurred costs related to it. They were therefore claiming legal redress in accordance with the Christmas Ruling of the Supreme Court. The tax inspector argued that unrealised capital gains should be taken into account when calculating Box 3 income. The inspector wanted to take the annual increase in the value of the property (under the Valuation of Immovable Property Act, WOZ) into account for the Box 3 levy.
The Court of Appeal did not share the inspector’s view. The Court of Appeal deduced from previous Supreme Court case law that the compensation aimed at legal redress should, in principle, match the actual return. No more should be taxed than the interest, dividends, rent, royalties and possible other forms of direct, realised capital gains actually earned.
In other words, the Court of Appeal ruled that unrealised capital gains do not have to be included in the calculation of the Box 3 levy. According to the Court of Appeal, unrealised capital gains do not fit within the term "return actually achieved" used by the Supreme Court in previous case law.
